Costco Wholesale Corp COST
Household spending and value trade-down
Affordability
Research as ofOur investment view
PredictionThrough 2028: Fuel inflation will ease as conflict-related supply disruption fades, but affordability will improve slowly: the overall price level will not return to its pre-shock level, and shelter and borrowing costs will remain a bigger constraint than headline CPI suggests. Real income may recover without households feeling a broad return to cheap essentials.
What would confirm it: Lower energy inflation alongside sticky shelter or financing costs, with real wage gains that only gradually improve housing and discretionary-spending measures.
What changes our view: Sustained declines in shelter and borrowing costs plus real income growth that restores household purchasing power across essentials faster than expected.
Higher prices keep households under pressure
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Households spent more dollars without buying materially more. A small improvement in mortgage rates offered relief, but did not undo the squeeze on purchasing power.
Inflation absorbs the spending increase
BEA’s October 29 release put September PCE inflation at 3.6% year over year and core inflation at 3.1%. Monthly spending rose 0.5%, but real consumption increased less than 0.1%; inflation-adjusted disposable income fell 0.3%. [1]
Housing finance eases, but remains expensive
Freddie Mac’s October 29 survey put the average 30-year mortgage at 7.24%, down from 7.32% a week earlier but above 6.17% a year earlier. The eight-basis-point weekly decline helps at the margin; it does not restore last year’s financing costs. [2]
Our investment read
This supports the part of our thesis that affordability can remain poor even when individual costs ease. It challenges an assumption of rapid inflation relief: the latest monthly price increase was substantial. Our base case remains a slow repair through real-income growth, rather than a return to earlier price levels.
What matters next
For RKT and homebuilders, watch purchase applications, incentives and cancellation rates. For retailers, distinguish higher sales dollars from unit growth and trading down. The strongest improvement would be several months of rising real disposable income alongside lower housing payments.
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Holdings …
Walmart Inc. WMT
Household spending and value trade-down
Rocket Companies Inc RKT
Mortgage affordability and origination
UWM Holdings Corp UWMC
Mortgage affordability and origination
The Home Depot Inc HD
Housing-linked consumer demand
Investment context
The investor question is whether household income is gaining on essential costs. A lower inflation rate means prices are rising more slowly; it does not return groceries, rent, or insurance to their old levels. Energy shocks can also lift headline inflation while underlying services follow a different path. That distinction matters for consumer demand and the Federal Reserve's policy choices.
What the latest releases say
| Measure | August 2026 reading | How to read it |
|---|---|---|
| Consumer Price Index | BLS reported headline CPI up 3.4% over 12 months and 0.4% in August; CPI excluding food and energy rose 2.4% over 12 months. | The annual headline rate was unchanged from July; the monthly increase was partly an energy story. |
| Gasoline and shelter | BLS reported gasoline up 3.9% in August and 27.4% from a year earlier. Shelter rose 0.3% in the month and 3.0% over 12 months. | Fuel can move quickly; housing costs often adjust more slowly. Neither alone describes every household's budget. |
| Personal Consumption Expenditures prices | BEA's September 30 release put headline PCE inflation at 3.4% and PCE excluding food and energy at 3.0% over 12 months. | CPI and PCE use different baskets and methods. They should not be treated as interchangeable readings. |
| Spending power | BEA reported real disposable personal income unchanged in August while real consumer spending increased 0.6%. | One month's spending growth does not establish that affordability improved; households may save less or borrow more. |
EIA documented sharp fuel-market effects from the second-quarter Hormuz disruption. A renewed supply problem could keep gasoline and transport costs elevated; a reversal could quickly ease headline inflation. Persistent energy costs can spread into wages, freight, goods, and longer-term expectations.
Why markets care
Persistent inflation can keep short-term rates higher for longer, raise household borrowing costs, and pressure the valuation of long-duration assets. But the reaction depends on which component moved. A temporary gasoline jump with stable core inflation has different policy implications from broad services inflation. Consumer companies also face different outcomes: a retailer may gain visits from trade-down behavior while still seeing margin pressure from freight or wages.
Within our universe, WMT and COST show the value-oriented consumer channel; RKT and UWMC are directly sensitive to mortgage affordability and origination volume; HD is tied to housing activity. None is a pure inflation hedge. Their earnings, margins, and customer mix are needed before drawing stock-specific conclusions.
What could change the view
A sustained decline in fuel and shelter inflation with improving real wages would ease the squeeze. Renewed energy inflation combined with persistent core-services inflation would strengthen the case for lasting pressure on household budgets.
Current view: Affordability remains pressured because headline inflation is elevated and the price level is still high. The evidence does not yet prove a broad acceleration in every category; energy and core measures need separate treatment.
Sources
- BLS: Consumer Price Index, August 2026 — headline, core, gasoline, and shelter measures.
- BEA: Personal Income and Outlays, August 2026 — PCE inflation, real income, and spending.
- EIA: Petroleum markets and Middle East disruptions, July 2026 — observed fuel-market transmission.